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September 27th, 2017

Enabling environment and smallholder finance: A complex relationship

Published by RAF Learning Lab,

This analysis by Initiative for Smallholder Finance and Rural & Agricultural Finance (RAF) Learning Lab discusses the relationship between the enabling environment and smallholder finance. This relation is complex, and to date, there is limited research on the link between the success of specific smallholder products and services and factors in the enabling environment. This analysis highlights some early learnings from the Mastercard Foundation’s rural and agricultural finance portfolio, which consists of ten programs spanning 26 countries in sub-Saharan Africa. The smallholder finance environment is determined by at least four key elements, including the regulatory, financial, knowledge, and digital infrastructure of a given country or context. Policies by government and regulators can encourage or discourage lending to smallholders. If governments regulate the use of collateral and streamline land registration procedures, the risk of agricultural lending decreases and financial institutions (FIs) are encouraged to enter the market. Also the market understanding has an impact. Generally, financial service providers (FSPs) lack a mature understanding of smallholder farmers, constraining potential borrowers from designing effective services and products. Furthermore, both the availability and price of capital affect the success of new business models. Digital infrastructure, including agent networks, is needed for cost-saving mobile-based solutions to take off. Last, building connections between value chain actors and smallholders is challenging and costly but critical to boosting product development and uptake­.

Curated from raflearning.org